Have to show work 13- Before the new tax law enacted in 2003, dividends were tax

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Have to show work

13- Before the new tax law enacted in 2003, dividends were taxed as ordinary income. Now the maximum tax rate on dividends paid to individuals is 15%. As a result of the law, an investor in the 25% tax bracket who received $70,000 in qualifying dividends had a tax savings of A: $ 0. B: $ 7,000. C: $ 9,000. D: $10,500. E: $17,500.

14- Abby buys a position in a closed-end mutual fund that is selling at an 8% discount. The fund earns 12%, but the discount decreases to 5%. What is Abby’s return on this investment? A: 8.5% B: 12.0% C: 12.4% D: 14.2% E: 15.7%

15- Corey pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. Four years ago, she invested $500,000 in a private placement offering with some friends. The initial price was $50 a share. The investment group is now discussing the possibility of publicly selling their shares. One of the members of the group believes they could get at least $75 a share. If this is correct, what are Corey’s taxes when she sells her shares (ignoring commissions and fees)? A: $0 because the group is not allowed to sell their private placement shares to the public B: $37,500 C: $54,000 D: $70,000 E: $87,500

16- Assume that the futures price of gold is $390 a troy ounce, and the contract is for 100 troy ounces. The initial margin is $2,000. If the future price increases by 5.0%, what is the return to the investor? A: 1.0% B: 2.5% C: 5.0% D: 19.5% E: 97.5%

Explanation / Answer

Answer 13:

The tax rate has been reduced from 25% to 15% on dividends. Therefore, tax savings of 10% on dividends is available for investors.

Total tax savings = dividends x tax rate

                                = 70,000 x 10%

                                = 7,000

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